The Myth of the "Repurchase Program"

This is an old blog that's being "resurrected" because it's about a topic that comes up every year at this time of year.

As Club Intrawest/Embarc members grow older and their families mature (or their health changes) vacation needs are re-evaluated. For many, retirement brings the time and the opportunity to take more vacations at the Clubs. For others, a fixed income, poor health or a change in vacation preferences means that they would like to take advantage of the much-touted "repurchase" program offered by Intrawest for members who purchased their points before 2013 in order to get some money back for their points.

Here's what Embarc has posted on the FAQs in the HOA section of the Embarc website:

What is the Embarc Repurchase Program?

A Resort Points Repurchase program was created for long-term members who have owned their Embarc Resort Points for a minimum term of 5 years and who must have purchased their Resort Points from Intrawest directly on or before February 13, 2013 or from IROC U.S. or RVLP on or before June 30, 2013, whichever applies. This program offers eligible members the opportunity to have their membership repurchased. Members who apply within the calendar year are eligible to have their membership considered for repurchase in January of the following year on a first come first served basis. There is no guarantee that sufficient funds will be available in any given year to repurchase Resort Points of all Members who apply. The attached form can be completed by any Embarc member making a request to register their Resort Points for this repurchase scheme. Please click the question link above to access the Repurchase Request form for Embarc ownership. Fill out the form completely and send either via mail to The Landing, #326-375 Water Street Vancouver, British Columbia, Canada V6B 5C6, via fax to 604-682-7842, or via email to MembersInbox@diamondresorts.com. Once received, your member services team will submit your request for consideration.

What the Repurchase Program really is...

Sounds good doesn't it? A way to give back your membership to Embarc and a guarantee that you get money back in exchange. The statement above, which DRI has posted on the member site, may get you high on hope but it is short on details. In fact, there are many caveats*:

1) the dollar amount budgeted each year for the repurchase of member points is limited to 1% of the Developer's last year's sales

2) the developer will pay varying amounts based on these criteria:

• each qualified member who has owned all of his or her tendered resort points for less than 8 years will be paid a purchase price equal to the lesser of sixty (60%) percent of the original purchase price or forty (40%) of the lowest current sales price charged by any developer on a sale of the same number of resort points as at the date that the repurchase request was received by Embarc.

• each qualified member who has owned all of his or her tendered resort points for 8 years or more, will be paid a purchase price equal to the lesser of one hundred (100%) percent of the original purchase price or forty (40%) percent of the lowest current sales price charged by any developer on a sale of the same number of resort points as at the date that the repurchase request was received by Embarc.

3) for the purpose of this program, original purchase price means:

• for all tendered resort points purchased prior to November 5, 2005, the original price paid for the tendered resort points (excluding all applicable taxes) paid in connection with the purchase of the tendered resort points and any payment for resort fees

• for all tendered resort points purchased after November 4, 2005, the original purchase price means the purchase price paid in connection with the purchase of the tendered resort points and any payment for resort fees, less the sum of $600.

* Disclosure: these three points are based on the details in Table 16 of the Club Intrawest Instruments dated 2006. Embarc may have changed the criteria, but if they have, (in my opinion) it is unlikely to have been in a way that advantages members positively.

Let's read through this again to understand exactly what is being said

So let's assume that Embarc sells about 300,000 points a year (there are about 4.4 million points total in the trust with about 6 to 8% belonging to the developer so this is an extremely generous amount) at an average price of $175cad (a price several members have quoted as being the final, offered price for a purchase of points at a sales meeting). This means Embarc would have sold about $52,000,000 of points in a year. Therefore, if 1% is allocated, $525,000 is set aside for the repurchase program. Assuming that Embarc gives back, on average $10,000 per membership, this means about 50 memberships are bought back per year which is what has been reported back as the member progress up the list. It's less than 50 if they are giving back more than $10,000 on average.

1) 1% of the developer's last year's sales is set aside to repurchase member points. How much is that? We don't know because we don't have access to the developer's financials (only the Club's). What we do know, because of members reporting this, is that they have been moving up the waiting list by about 40 to 50 positions per year.

2) the purchase price: the lesser of either 60% or 100% of purchase price (depending how long they were owned) or 40% of the lowest current sales price charged etc.

How much are members getting back for their points? The lesser amount.

So, for the purchase price calculation, you can calculate how much you would get if you take the amount you paid (for me, $125 a point in 1997) and I would get $75 a point at 60% (if a shorter-term owner) or $125 a point at 100%.

My Calculation:

If the lowest current sales price was $200 per point, I would get the lesser of $125 or $80 a point. It almost always works out to the 40% of the lowest current sales price being the lesser value. This means I should get about $10,000 for my 120 points when my turn comes up.

There is, however a major problem!

What is this problem? It's that so many members have put their names on the repurchase list that according to the last report in our Facebook group, a member adding their name to the list today would be in the 1500+ range on the list. That's right - there are so many members on the list that it could take about 50 to 60 years before your turn came up!

Why is this happening?

It's because there is no secondary (resale) market because of the policies put in place by the developer which restrict the resale point owners to using their points only within Embarc (no ExtraOrdinary Escapes, no Interval membership). If there were a secondary market with points being sold at a reasonable price, members would not be "forced" to relinquish them to DRI. Therefore, the only possible way to get out of the membership is to either sell one's points at bargain-basement prices ($20-30 per point has been quoted recently), give it to someone or to simply surrender them back to Embarc so the member does not have to continue to pay the yearly fees.

If you were thinking that the Repurchase Program was going to be your "exit strategy" from Embarc, think again!